China is known to be a powerhouse of a country. They have a powerful government, education system, military, science, medical fields, and more. Right now though, China has a major issue. It’s economy is in shambles. Their currency situation is threatening business and trade immensely. If not fixed soon, China could go into a great depression of its own.

The Renminbi, better known as the Yuan, is the current form of currency used throughout China. One American dollar is equal to around 6.4 Yuan. That is only for mainland China though, offshore it’s around 6.5. The Yuan is restricted strictly to just inside China’s borders due to this slight fluctuation. No foreign money is allowed in due to this. Along with this problem is the problem of the Yuan losing its value. This steady devaluation is causing Chinese companies to lose business.

This is a huge problem. If this problem was never fixed, people would just keep exchanging money back and forth and the 2% difference between the currency would earn them money each time.

The Yuan was recently qualified to be the official reserve of China. The Chinese central bank is trying to keep the Yuan pegged to the American dollar but unfortunately, the Yuan is gradually devaluing. Beijing is trying to persuade the International Monetary Funds global currency basket to give the Yuan the same status as the U.S. dollar, the British pound, the Euro and the Japanese Yen. The Communist leaders of China came up with the Five Year Plan which hopes to have the Yuan be in this group and convertible by the year 2020.

Right now, it seems unlikely they will add the Yuan to the global currency list due to it having two exchange rates. This will most likely get sorted in the future, but it won’t be easy. Plans similar to the Five Year Plan are risky as seen from examples in the past, like Japan when they had this issue. In the future, if China’s Plan goes as hoped, the Yuan should join those ranks in the next 10 years I predict.

Many countries rely on China for exports and other good and services. If the Yuan lost even more of its value, China’s economy would fall even harder.  “Worse, further devaluation could prompt investors to move funds out of China at a time when more credit is needed to bolster the economy, the people say. According to the latest official data, companies’ and other entities’ Yuan holdings at Chinese banks, accumulated when they sell foreign exchange to the lenders, fell by a record 249.1 billion yuan ($39 billion) between June and the end of July,” says Lingling Wei of the Wall Street Journal.

The fluctuation in value of this currency is causing issues to China’s economy. Without a reliable currency, trade has become increasingly more difficult for the Chinese. China will face financial crisis’s if they don’t pay back the loans taken from domestic borrowers. The stock market has already seen a 5 trillion dollar disappearance. Some stocks in the stock market are being banned and restricted for selling and trading and many CEOs are becoming corrupt.

With China still being a very powerful nation, it’s hard for someone to think of them as anything but that. One could argue this is just a hiccup in China’s history, it won’t really affect them in the long run. While China is still a country ahead of most in terms of technology and education, these people are wrong. This crisis could take years if not decades to fix. Just take a look at an example from the past, Japan. Japan took 40 years to fix its exchange rate and still ended up having their economy crash for around two decades. This could very likely happen to China too if they are not cautious. They need to fix this issue quickly, and smoothly.

China has the right plan, but it will be a difficult journey. Evening out the Yuan, having the Yuan earn some value, and keeping their business partners will all be tough. Alexander Sullivan, an associate fellow at the Center for a New American Security in Washington had this to say; “China is at the beginning of what will become an increasingly complex story over the coming years and decades.”